Unstructured Finance

Former stock market ‘scalpers’ are vocal HFT critics

By Emily Flitter

REUTERS/Rebecca Cook

While the Securities and Exchange Commission maintains it does not need to do much to reign in the high frequency trading machines that have taken over Wall Street, a group of traders who understand how HFT firms make money—because it’s similar to the method they used to use themselves—have become vocal HFT critics. Yes, they may complain because they don’t make as much money as they used to, but they also think the machines are destabilizing the market.

Meet Dennis Dick, a prop trader in Detroit and a member of a league of stock market participants who have had to change their trading strategies now that they are no longer the fastest guns on the Street.

Dick is in the company of critics like Joe Saluzzi and Sal Arnuk, the co-founders of Themis Trading whose book, Broken Markets, details their concerns about the machines.

“We used to be shorter-term traders, scalpers who were also market makers,” Dick said. “Now we’re just trading a longer time horizon. You can’t come in and expect to scalp.”

Dick, who works for Bright Trading and also founded his own research firm, Premarket Info, has met with SEC staff to discuss his concerns about high frequency trading. He emphasizes that while he and the other scalpers might not deserve a great deal of sympathy, the other humans in the stock market—retail investors—certainly do, and they are being treated the same way.

Check Out Line: The wrong kind of Black Friday

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Global markets took the meltdown up another notch on Friday, with Japan’s Nikkei index ending down 9.6 percent and European shares down 8 percent. U.S. stock futures market fell so much they had to be frozen at several points overnight.
 
It’s the kind of Black Friday retailers don’t want to see.
 
Consumers are pulling back in droves and Liz Claiborne is the latest to feel it.
 
The company lowered its full-year earnings forecast and also said it plans to cut capital spending in half in 2009.
 
Comparable net sales also fell 15.9 percent percent in the third quarter, the company said.
 
“Traffic in malls and street locations is off in every region, including Europe,” CEO William McComb said. “Consumer confidence has clearly been impacted in a way we hadn’t seen earlier this year.”
 
The department stores that carry Liz Claiborne’s clothes dramatically increased promotional spending in September, he said.
 
By the way, it’s just 62 days until Christmas.
 
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